Instructions For Form 4917 - Flow-Through Withholding (Ftw) Quarterly Return
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2Michigan Department of Treasury
4917 (Rev. 05-12)
Instructions for Form 4917
Flow-Through Withholding (FTW) Quarterly Return
on any distributive share of income for which it is able to
Purpose
identify the ultimate taxpayer in the lowest tier as a non-resident
Michigan Compiled Laws 206.703 requires flow-through
individual. Finally, the upper tier source flow-through is not
entities to withhold Michigan income tax on certain members’
required to withhold if it is able to identify the ultimate taxpayer
distributive share of income. Flow-through entities remit
in the lowest tier as a resident individual.
withheld taxes using this form.
A lower tier flow-through entity that has no business income
sourced to Michigan, other than business income received
Overview of Flow-Through Withholding
from an upper tier flow-through, will not have to pay additional
What is the overall structure of the flow-through
withholding and will be credited with any payments paid on its
withholding process?
behalf by the upper tier source flow-through.
A flow-through entity that is subject to the withholding
When the lower tier flow-through entity receives year-end
requirement (see below) must file quarterly returns and
information from the upper tier source entity about how much
corresponding payments on this form. By the end of the second
has been withheld on behalf of the lower tier entity’s owners,
month after the flow-through entity’s tax year end, the flow-
it should forward that information to its owners for whom
through entity must file an Annual Withholding Reconciliation
withholding has been paid. The name and FEIN of the upper
Return (Form 4918), which will reconcile the aggregate
tier entity also should be provided to the owners of the lower
liabilities and payments from the quarterly returns.
tier entity.
The annual reconciliation return will provide the name and
Publicly traded partnership, as defined under Internal
account number of each owner (partner, member, shareholder)
Revenue Code (IRC) 7704(b).
and each owner’s share of the withholding payments. The
Publicly traded partnerships are not required to withhold on
flow-through entity also will inform each of its owners of their
behalf of their members.
share of the withholding paid, which they will claim on their
corporate or individual income tax returns. The withholding
Calculating Michigan flow-through business
information provided by the flow-through entity to its owners
income
must be in writing, but there is no prescribed form or required
format. Generally, the information should include the FEIN of
Business income of a flow-through entity
the flow-through entity, the tax year and the amount withheld.
For corporate members, business income is federal taxable
The information should be provided by the flow-through entity
income calculated as if the following two provisions were
to its owners either before or at the same time that the owners
not in effect: IRC § 168(k) “bonus depreciation” for certain
receive their Federal Schedule K-1s.
property acquired after December 31, 2007, and IRC § 199
Who must pay flow-through withholding?
domestic production activity deduction.
A flow-through entity that is an S corporation under IRC §
For nonresident individual and trust members, no adjustments
1362(a), a general partnership, a limited partnership, a limited
for “bonus depreciation” or the domestic production activity
liability partnership, or a limited liability company, that for the
deduction are required when calculating the nonresident
applicable tax year is not taxed as a C Corporation for federal
individual’s or trust’s share of distributive income.
income tax purposes, must pay withholding. Trusts are not
flow-through entities for purposes of withholding and are not
Allocation
required to withhold on trust beneficiaries.
If all the sales of a flow-through entity are sourced to
Michigan, then all of the business income is allocated to
Who are members of a flow-through entity?
Michigan and subject to income tax withholding on behalf
Members are the owners of a flow-through entity and may
of all corporate members and all non-resident individual
be S Corporation shareholders, general partners, limited
members. If the flow-through entity has sales outside of
partners, limited liability company members or limited liability
Michigan, then the flow-through entity’s business income must
partnership members.
be apportioned.
Flow-through withholding on behalf of corporate
Apportionment for a flow-through entity that has
members
individual members
A flow-through entity must withhold and pay Michigan
Apportionment is based on the ratio of Michigan sales to
Corporate Income Tax at the rate of 6 percent on the distributive
sales everywhere of the flow-through entity. The sales factor
shares of its members that are C Corporations or that are taxed
is then applied to the flow-through entity’s business income
as C Corporations for federal income tax purposes. Flow-
to determine the taxable Michigan business income. The 4.35
through withholding for C Corporation members is not required
percent Individual Income Tax rate is then applied to obtain the
if the annual Michigan business income of the flow-through
income tax withholding due.
entity is $200,000 or less. If the Michigan business income is
For individual income tax, sales include throw back sales and
$200,000 or less, then each C Corporation member must make
also include services based on cost of performance.
estimated tax payments instead.
Apportionment for a flow-through entity with
Flow-through withholding on behalf of non-resident
C Corporation members or lower tier flow-through
individual members
entity members
A flow-through entity must withhold and pay Michigan
Apportionment is based on the ratio of Michigan sales to sales
individual income tax at the rate of 4.35 percent on the
everywhere of the flow-through entity. The sales factor is
distributive shares of non-resident individual members. Flow-
then applied to the flow-through entity’s business income to
through withholding for non-resident individual members is
determine the taxable Michigan portion of the business income.
required regardless of the entity’s level of business income.
The corporate income tax rate of 6 percent is then applied to
obtain the income tax withholding due unless the lowest tier
Flow-through withholding on behalf of other
flow-through entities (tiered structures)
member is known to be resident individual (no withholding) or
a non-resident individual (4.35 percent).
In general, if a flow-through entity (upper tier source flow-
through) has members that are other flow-through entities
Due Dates of Flow-Through Withholding
(lower tier members), then the upper tier source flow-through
Quarterly Return
must withhold on the distributive share of each lower tier
member at the corporate income tax rate of 6 percent. However,
Flow-though entities that are on a calendar year basis must
withhold and file quarterly by April 15, July 15, October 15,
the upper tier source flow-through may withhold at the
individual income tax rate of 4.35 percent, instead of 6 percent,
and January 15. Flow-through entities that are not on a calendar
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